U.S. and Chinese trade negotiators are scrambling to put a plan together for the meeting between President Xi Jinping and his U.S. counterpart Donald Trump in Osaka, Japan at the end of the week. The trade negotiators have not talked in the six weeks since the talks collapsed in early May, but a phone conversation between Xi and Trump, during which the two confirmed their meeting in Osaka, has rekindled the process. Eleven rounds of talks have brought both sides close to consensus on most parts of a deal, it is believed, but the remaining differences will be difficult to resolve.

Companies and experts warned that intensifying Sino-U.S. trade disputes could lead to a breakdown of the global value chain, as the United States Trade Representative (USTR) started a seven-day public hearing on the proposed additional tariffs on about USD300 billion worth of Chinese exports. The hearing was held from June 17 to 21, and continue from June 24 to 25. More and more data point to the U.S. and China reversing a decades-long trend of increased interdependence that some called ‘Chimerica’, and beginning to decouple. While low- to medium-end manufacturing is relatively simple to disentangle, there are chasms and barriers appearing all over the U.S.-China economic relationship, suggesting that a broad-based break-up may be under way, even in more complex sectors.The decoupling of investment is already clear. Last year, Chinese acquisitions of American companies plunged 95% from their peak in 2017 after the U.S. Congress gave the Committee on Foreign Investment in the U.S. authority to broaden the scope of its reviews of Chinese acquisitions on national security grounds.

Earlier this month, more than 600 U.S. companies and trade associations including Walmart, Target and Costco sent a letter to U.S. President Donald Trump, warning that tariffs on Chinese exports will have a longterm negative impact on U.S. businesses. “We remain concerned about the escalation of tit-for-tat tariffs. Tariffs are taxes paid directly by U.S. companies, not China,” the letter said, stressing that escalated trade tensions were not in the U.S. best interests and both sides would stand to lose.

Li Daokui, Director of the Academic Center for Chinese Economic Practice and Thinking at Tsinghua University, said that “Sino-U.S. trade relations are a vital part of the global value chain. Damaging Sino-U.S. relations, in fact, damages the global production and value chain”. Tara Joseph, President of the American Chamber of Commerce in Hong Kong (AmCham), said it would be a “real shame” if Hong Kong became a pawn in the U.S.-China trade war. Hong Kong’s GDP growth slipped to 0.6% year-on-year in the first quarter of 2019, the slowest pace in a decade.

A trade agreement between China and the United States is “within reach” as long as Donald Trump and Xi Jinping have the “courage” to compromise. “Let them get to the word ‘yes’ – we have an agreement”, Craig Allen, President of the U.S.-China Business Council, told a seminar at Renmin University in Beijing. In a carefully worded speech, Allen listed the U.S. concerns behind the lingering trade tensions and called on Beijing to address them, saying it would benefit the country in the long run. “There is a need for continued economic reform and opening and 2019 would be a great time to do that,” Allen said. “China should not have a nationalist industrial policy, nor should America, we should work together,” he said.

China and Britain have clinched GBP500 million worth of deals as Chinese Vice Premier Hu Chunhua visited London. In the light of the ongoing trade war with the U.S., China appears eager to re-establish the “golden era” with Britain, an idea that started during Xi’s state visit in 2015. While in London, Hu co-chaired the latest China-UK Economic and Financial Dialogue with Chancellor of the Exchequer Phillip Hammond and officiated at the launch of the long-awaited London-Shanghai Stock Connect project, which enables companies listed in Britain to sell shares in China. Britain has hailed the deals with China as a diplomatic success amid the business uncertainties looming over Brexit. Britain also secured permission from China to export beef by the end of the year at the earliest, ending more than two decades of a Chinese government ban implemented in response to the BSE outbreak.

China will remove all access restrictions on foreign investment in areas outside the negative list by the end of this year, as part of the country’s overall effort to further open up the economy and pursue high-quality development, Meng Wei, Spokeswoman for the National Development and Reform Commission (NDRC) said. The revised negative list on market access of foreign investment and the catalog of encouraged foreign investment industries is to be released by the end of the month. “Our negative lists will only be shortened further,” Meng added. “By the end of this year, China will lift all barriers to foreign investment not included on the negative list, and China will encourage more foreign investment in more fields, especially for the central and western regions.” A negative list indicates areas where investment is prohibited, while all other areas are presumed to be open.

Li Gang, Director of the Academic Committee at the Chinese Academy of International Trade and Economic Cooperation, said that “in the era of economic globalization, shutting our door to the outside world would not help China. We need to foster a better business environment and widen market access to attract more foreign investment, which will help fuel innovation, and improve industrial upgrading and high-quality economic development in China.”

China’s foreign direct investment (FDI) grew 6.8% year-on-year to CNY369.06 billion in the first five months of this year, according to the Ministry of Commerce (MOFCOM). Manufacturing FDI in China reached CNY112.89 billion, up by 12.4% year-on-year. According to the World Investment Report 2019 published by the United Nations Conference on Trade and Development (UNCTAD), China was ranked as the world’s second-largest FDI recipient after the United States, accounting for more than 10% of total global FDI. China ranked 46th out of 190 economies in the World Bank’s newly released ease of doing business rankings for 2018, compared with 78th place in 2017, the China Daily reports. There will be one list for pilot free trade zones and one for the rest of the country.

While in the 1990’s Chinese students graduating abroad preferred to get a job with large foreign multinationals, their sons and daughters now prefer to work for domestic Chinese tech companies such as Xiaomi. They are convinced that Chinese startups can offer them the same opportunities today as foreign multinationals in the 1990s. The career choices of two different generations of foreign-educated Chinese students reflect a wider trend. Once upon a time, foreign multinationals could cherry-pick top Chinese talent from universities with the promise of large salaries, generous benefits and the chance to work at market-leading companies. Today, China’s cutting-edge technology companies – often referred to as China Tech Corporation (CTC) – are the most sought-after employers among many Chinese students.

This marks another blow for multinational corporations (MNCs) already struggling to do business in China amid restrictions and growing hostility towards them as the U.S.-China trade and tech war gathers pace. New graduates are looking less to get a high salary, but care more about personal improvement and access to the best resources a company can offer to develop new products. Moreover many Chinese today perceive a “bamboo ceiling” in the U.S., where they are more often seen as engineers rather than executives. One Chinese executive who now oversees the technology unit of a listed finance and insurance firm in China said that he used to lead a team of 20 engineers at one of the world’s most valuable tech companies in Silicon Valley. “My job was to keep optimizing the performance of a product. But within three years in China, I was promoted to be Chief Scientist of our entire company, leading a team of 1,000,” he said.

LinkedIn compiled a list of the top 25 most desired employers in China, and about 60% were local Chinese companies, with 13 of them internet firms. Alibaba, Baidu and Bytedance topped the list. Tesla ranked sixth behind its Chinese challenger Nio. Amazon, the only other foreign company on the list, ranked eighth. Li Qiang, Executive Vice President of Zhaopin, one of China’s largest online recruiters, described the rising status of CTC among jobseekers as “the dawning of a new era”. “Nowadays, there is nothing a multinational can offer that a domestic firm cannot, be it a compensation package or the chance to be part of international expansion,” he said. “Jobseekers are not particularly looking for domestic firms or multinational firms. They are after good firms and most of the good firms in China these days happen to be domestic tech firms,” he added, as reported by the South China Morning Post.

A survey by Zhaopin in late 2018 found that 28% of Chinese university students said MNCs were their employer of choice, down from 33.6% in 2017. A recent survey by Universum shows that Apple and Siemens were the only two Western names in the top 10 ideal employers for Chinese students in the engineering sector this year, while there were four foreign firms in the top 10 list in 2017. Huawei Technologies ranked top in the Universum list. Xiaomi ranked second, while Apple ranked seventh. It seems that China’s rising clout in the world is now an attractive factor for jobseekers.

Attacks from the United States will not stop Huawei from moving forward, Founder and CEO Ren Zhengfei said. Ren estimated that the company’s revenues could drop to around USD100 billion this year and the next, but he expected a revival in 2021. He made the remarks during a dialogue with U.S. futurist George Gilder and Nicholas Negroponte, co-founder of the Massachusetts Institute of Technology’s Media Lab, at Huawei’s headquarters in Shenzhen. Huawei will invest USD100 billion in the next five years to make network infrastructure more efficient and reliable, Ren said. Despite the financial blows, Ren said there was no plan to reduce research spending and he promised to make more contributions to theoretical science in the future.

He said Huawei will neither split nor sell its mainstream businesses, and it has no plans for a mass layoff. In answering a question about Huawei’s plan to sell its submarine cable business unit, Ren said the company had long wanted to dispose of this business. This was not in response to external attacks, but because it had little relevance to the company’s mainstream businesses. He also said there are “absolutely no backdoors” in Huawei’s equipment and the company is willing to sign no-backdoor agreements with other countries.

He said issues of network security and information security should be viewed separately. The network of human society must not be prone to problems as it connects 6.5 billion people and tens of millions of banks and countless enterprises. Thirty years of applications in 170 countries and regions have proven that Huawei’s network, which serves 3 billion people, is secure, Ren said. However, information security is another question. He described Huawei as a provider of “pipelines” and “faucets,” saying operators and content providers must be responsible for contents “running in the pipelines,” the Shanghai Daily reports.

Ren confirmed that Huawei’s overseas smartphone business may drop by 40% this year, but the company has seen big growth in smartphones in China. Nicholas Negroponte said at the dialogue in Shenzhen that the U.S. is not an absolute leader in semiconductors anymore, and it is impossible for the U.S. administration to use Chinese companies’ reliance on foreign semiconductor products to pressure them. Lu Tingjie, Telecom Professor at Beijing University of Posts and Telecommunications, said any harm to Huawei will have broader ripple effects across the global tech arena and beyond due to the company’s huge size and its technological prowess in 5G.

Meanwhile, Huawei has filed a lawsuit against the U.S. Department of Commerce at the District Court in Washington for withholding Huawei’s equipment – a server and Ethernet switch – shipped to an independent lab in California to undergo certification testing in 2017. In September that year, when the equipment was to be shipped back to China, the U.S. government detained the shipment in Anchorage, Alaska, as the Commerce Department took time to investigate whether an export license was needed to ship it. In its lawsuit, Huawei said it had been waiting for almost two years for a decision. The U.S. government has “unlawfully withheld and unreasonably delayed” its responsibility to make a license determination and the equipment “remains in a bureaucratic limbo in an Alaskan warehouse,” the filing said.

U.S. President Donald Trump is also considering to require next-generation 5G cellular equipment used in the United States to be designed and manufactured outside China. The U.S. administration has asked telecom equipment makers if they can develop hardware including cellular-tower electronics as well as routers, switches, and software outside China. A list of proposed rules and regulations is expected to be issued in October.

Interest from European companies in acquiring Chinese assets, including state-owned enterprises, intensified last year, while the U.S.-China trade war made American firms cautious and also curtailed outbound investments by Chinese companies, according to investment bankers. “As China continues to seek to attract foreign investment in larger SOEs which are undergoing reforms to make them more competitive, that creates many opportunities for foreign investors,” said Samson Lo, head of mergers & acquisitions, Asia at UBS. As European firms seek more opportunities in China, China’s outbound investment has declined. China’s outbound investments stood at USD200 billion in 2016 but fell to USD70 billion in 2018 and are likely to fall further this year. However, the decline in M&A activity will be offset by inbound investment, as well as by transactions arising from the establishment of joint venture deals and the restructuring of SOEs in China.

There were 49 deals in China involving European companies last year, up from 32% in 2017. Their value jumped 856% to USD9.94 billion from USD1.04 billion in 2017, according to Dealogic. One of the biggest deals last year was Dutch brewer Heineken’s acquisition of a 40% stake in state-owned CRH Beer for USD3.1 billion. SOEs willing to sell a majority stake are of particular interest to international buyers not only because of the bridgehead they offer into China but also because of the good relationships that the SOEs typically have with the Chinese government. Raghu Narain, head of investment banking at Natixis Asia-Pacific, said that for European firms it is “all about trying to get growth” which is what China offers.
According to UBS’ Lo, the sectors where the Chinese government has relaxed restrictions such as insurance, asset management, banking and automobiles are attracting the most foreign investments, while consumer and health care continue to remain popular, the South China Morning Post reports.